A recent survey from Fidelity reveals that nearly half a million Americans now have 401k balances exceeding $1 million. This increase is attributed to factors such as higher contribution limits, consistent personal savings, employer matching contributions, and strong market performance. While the milestone is worth celebrating, it’s also important to acknowledge that inflation has reduced the purchasing power of these savings. The conversation emphasizes the importance of continued contributions, taking advantage of raised contribution limits, and aiming for higher savings rates to ensure a secure retirement.

Transcript:

Austin, a recent survey from Fidelity shows that nearly half a million Americans are 401k millionaires.

That’s something to celebrate.

And of course, begs the question, what’s going on?

You know, what are people doing to hit the right magic million dollar number?

Because it feels like a million dollars, that used to be a really big goal.

And we’re talking about huge numbers of people suddenly hitting it.

Yeah.

They all bought NVIDIA.

No, I’m kidding.

As of recent data, approximately half a million American, and this is from Fidelity, approximately half a million Americans have a 401k account balance that exceeds $1 million.

And that’s a really notable increase from prior years.

It’s attributed to a combination of things.

First, we want to celebrate it.

We like to see people investing, we like to see people saving for their future and having a richer retirement.

So we do want to celebrate that, but we sort of do have to sort of look at it in the cold light of day and what’s driving this.

So there’s a combination of factors.

There’s higher contribution limits, there’s consistent personal savings, there’s employer matching contributions, and frankly, a strong market performance.

And this last one is the most important.

The S&P 500 is near an all-time high.

And unfortunately, you know, a low million dollars is a lot of money.

It doesn’t go as far as it used to.

And I’m talking about inflation, right?

We saw inflation hitting almost 5% in 2021.

9% in 2022.

So this million dollars not going as far as it used to, it’s more true than ever right now.

And even though inflation is waning, it is still running pretty hot at about three and a half percent.

So while we certainly celebrate all these 401k millionaires, the fact is that the market being at all-time high is boosting those balances and inflation being sticky and persistent has made that money less meaningful for retirement.

What are people to do?

Just give up?

Is this not something worth celebrating?

No, of course.

The answer is just keep contributing.

So the good news is for 2024, the contribution limit for 401k plans has been raised to $23,000.

And there’s an additional catch-up contribution limit of $7,500 if you’re age 50 and above.

So this does allow individuals to more aggressively save as they approach retirement.

Now, on average, employees contribute about 7.5% of their salary to their 401k plans.

Employers typically match that at about 4.5%.

So your overall contribution rate, if you’re contributing to a 401k plan, is about 14%.

We like to see people set themselves a personal goal to see if they can get that to 15% to 20%.

We’d love to see people be a little bit more aggressive in saving for retirement in light of some of the inflationary challenges that we’re seeing right now.

And also remember that 3% to 5% is the new range for safe withdrawal rates here.

So for simple math, if you need $100,000 a year to live, that’s an investment account of nearly $3.5 million.

And if you’re doing the 5% withdrawal rate, that’s about $5 million total.

So we love to see all these 401k millionaires.

It’s awesome.

Our advice is keep on going.

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